In Tidewater Marine International Inc v Phoenixtide Offshore Nigeria Ltd, the second and third respondents (the chairman and managing director of Phoenixtide) sought to use the funds in a Swiss bank account to pay their legal expenses. The bank account was subject to an attachment order from the Swiss court, in support of a standard form of worldwide freezing order made in the English Commercial Court. The freezing order included an exception permitting the respondents to spend “a reasonable sum on legal advice and representation. But before spending any money the respondent must tell the Applicant’s legal representatives where the money is to come from”. The attachment order in the Swiss court contained no such exception.
The second and third respondents sought an order from the Commercial Court obliging Tidewater to make a joint application to vary the attachment order in the Swiss court, to permit the Swiss account to be used to pay their legal expenses.
The judge, Males J, set out that all of the respondents had earlier been held to be in serious and deliberate contempt of court, for which Phoenixtide had been fined and its chairman and managing director made subject to prison sentences (which the managing director had not served, thereby committing further and continuing contempt). In addition, the respondents had failed to comply (or procure compliance) with the terms of a default judgment ordering Phoenixtide to pay sums amounting to about $15 million in damages, whilst continuing with other claims against them.
When he turned to principles, Males J set them out succinctly:
- The interests of justice must be decisive.
- When a freezing order is granted, the court has already decided that some form of restraint on the freedom to use assets as the respondent sees fit is appropriate.
- The freezing order is not intended to provide security, but is intended to protect against dissipation.
- Use of the assets in the normal course of business is not dissipation. Disposals that are designed to render future judgments unenforceable are not permitted.
- Even substantial expenditure on legal representation can be reasonable.
- The respondent needs to show that he does not have other assets to resort to in order to fund his defence (see Halifax v Chandler).
- When giving evidence about assets that are available to fund his defence, a respondent must put the facts fully and fairly before the court (again, see Halifax v Chandler).
- It is relevant to consider whether there are others who may, looking at the matter objectively and fairly, financially assist the respondent in obtaining legal advice and representation.
- The respondent has the burden of persuading the court that he has no other assets available. This is because he knows the facts and the court has already been persuaded that there is a risk of dissipation.
- In most cases, the absence of other assets will be decisive.
- The injustice and inconvenience of having unrepresented parties would also be considered.
The respondents had admitted that they had Nigerian assets, but there was unchallenged evidence that they could not be used to pay their own legal costs, only outstanding judgment debts. This meant, the judge held, that they could be used to pay the costs which the respondents had been ordered to pay. Apart from that, they had given false evidence in the past in order to avoid making payments to Tidewater which the court had held they were obliged to make. The individual respondents had not given fully truthful and frank evidence about the chairman’s health, which led the judge to view their evidence with scepticism. They had provided few documents about their financial position and some of the evidence they had given about the chairman’s expenditure were falsehoods, probably deliberate. Other pieces of evidence, which could have been supported with documents if true, were left vague and unsupported. The individual respondents had not shown that family, friends and business associates would not assist them in funding their defence.
Moreover, they had deliberately flouted orders of the court, misled the court when it suited them, failed to release funds to pay a judgment debt and were now seeking release of funds to suit themselves. The connection with risk of dissipation is important because we all know of cases where the evidence about that factor was weak or barely present. Although the judge acknowledged that it might be difficult to prove that a party had no other assets, some credible evidence was needed to discharge the burden of persuasion.
So, looked at in the round, this was a very strong case where it would have been “grotesquely unjust” (as Tidewater’s counsel put it) to allow a variation. Although on the face of things it looks as though this is an incursion into the principle that the frozen assets are not held as security for the claimant’s claim, it is in reality nothing more than a very robust exercise of discretion in a case riddled with falsehoods on the part of the respondents.
It brings the following points to the fore:
- The need for good evidence of risk of dissipation in the first place, as what follows will be measured against that.
- The need for respondents to be frank with the court about their financial position, whether there is good evidence of the risk of dissipation and the question of what assistance third parties can give.
This last point is perhaps the most difficult one left unresolved by the judgment. Is the court saying that the respondents should borrow to meet the costs? That would, it is suggested, be a requirement too far.
